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Unit 1 - Meaning of Management

The term ‘management’ commonly refers to a group of people holding executive

positions in an organization, while the activity of management is that aspect of work

which is concerned with the efforts of the workforce of an organization.

1.1 The evolution of management

Management in one form or another has been practised since the beginning of

human society. Since early times people grouped together for various purposes, for

example, hunting, agriculture and other activities which required team work. To be

effective, such groups needed leaders – people whose tasks were to plan what was to

be done and how, and to direct and control the efforts of others.

These leaders – whether they were the heads of families or clans, or chiefs appointed to

lead tribes – can therefore be seen as having been the first ‘managers,’ as such, because

they influenced the activities of other people. In a large number of cases the early

leaders held their positions by brute strength, forcing other people to obey their

commands, while some of them were benevolent leaders who really looked after their

groups.

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With the passage of time the concept of management has changed from the one

practised in earlier times to the one which has elements of humane approach,

motivation etc.

1.1.1 Management today

In modern times management is considered to be an art. It is “the art of managing

the activities of other people.” A manager’s measure of success, or otherwise, depends

upon his/her skill in dealing with other people.

1.1.2 The purpose and need for good management

We can say that “management involves ensuring that a group of people work together in

the most effective and efficient manner to achieve a stated goal in the best and most

economical way.”

1.2 The provision of leadership

Management is a job but it is a job which is much more difficult because it involves

dealing not with ‘inanimate’ objects, services or theories but with men and women

who are unpredictable. Each of these men and women has a different or complex

character, skills and abilities, likes and dislikes, prejudices, and so on. Management

involves providing leadership to such groups of people – the workgroup – because

these people:

• Need adequate training to perform their work effectively;

• Need advice, guidance and assistance;

• Are to be motivated and controlled;

• Need to be organized as a workgroup, and their efforts are to be coordinated

so that they work together as a team.

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1.3 The ‘technical’ and ‘human’ aspects of a manager’s job

The modern world of commerce is very complex, and this very complexity has led to what

is called ‘specialization’ or the ‘division of labour’, by which different people specialize in

performing – and become specialists in – different types of work.

The ‘technical’ or ‘functional’ work of different managers can – and does – vary

enormously. There are sales managers, production managers, finance managers, stores

managers, and many more. Moreover, the technical or functional work of, say, a

factory manager in one enterprise might well differ greatly in many respects from that

of a factory manager in another enterprise.

Nevertheless, all those different types of managers should have considerable

knowledge of the technical aspects of their specific jobs in addition to being proficient

‘managers of people.’ It is, in any case, not easy to train, supervise and control the work of

others without knowing what they are – or should be – doing.

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So the duties of any manager comprise two quite different aspects:

• The technical or functional aspect which is concerned with the work to be

performed by the enterprise or department or section or workgroup;

and

• The managerial aspect which is concerned with the people who are to

perform the specified work in the enterprise or department or section or

workgroup.

1.4 Management in business

Most businesses have competitors producing or providing similar goods or services to

their own. And in most cases a particular business can prosper – and indeed survive –

only by keeping abreast or ahead of the competition. And it can only expand – for the

benefit of its owners and its employees alike – by doing better than its competitors.

Only a skilled manager can ‘weld’ his/her subordinates into an efficient and

coordinated team capable of achieving its objective in the best and most economical

way.

1.5 The place of management in modern world of commerce

Commerce is a subject about which all managers should have a basic working

knowledge. It is concerned with the methods by which products, which comprise many

different types of raw materials, components, goods and services, are transferred –

bought and sold, that is, distributed – to consumers (end-users) from the people and

businesses who or which produce the raw materials or components or the goods, or

provide the services.

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1.5.1 Products: goods and services

Raw and processed materials, and manufactured articles – which are often

called ‘goods’ – are tangible items, that is, they can be seen and touched, and some of

them can be tasted and/or smelt. The range of such ‘physical’ items is vast – from such

raw materials as iron ore and crude oil to manufactured articles of all shapes and sizes

– from tiny computer microchips to huge oil rigs, ships and aircraft.

What are called ‘services,’ on the other hand, are intangible, that is, they cannot usually

be seen, touched, tasted or smelt. They generally consist of some work performed,

only the results of which might be seen or felt. Some examples of services include the

work performed by accountants, lawyers, doctors, dentists, financial institutions,

insurance companies etc.

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1.5.2 The public and private sectors

In most countries there are two types of enterprises:

™ The public sector

These enterprises are controlled by the government. They are established

and run primarily for the benefit of the population as a whole – such as

National Health Service, or to provide security for the nation and its citizens

such as the armed forces, enterprises such as coal mines, electricity

generation entities etc.

™ The private sector

These enterprises are primarily owned by individuals or small or large groups

of people. They are run with the aim of making profit for their owners.

1.6 Types of enterprises

Enterprises – both in private and public sector – have a huge variety of their objectives, and

can be broadly divided into the following categories:

1.6.1 Industrial enterprises

Enterprises like mines which extract coal, iron etc. fall into this category. They sell

these to other enterprises for use as power or for use in manufacture. Other

enterprises are involved in processing or refining raw materials which are further

used in the manufacture of other products. Still other enterprises use raw or

processed material in manufacture of various products.

1.6.2 Trading/Distributive enterprises

The common activity of these enterprises is buying and selling – that is, distribution – of the

raw materials, components and products produced by the industrial enterprises.

Enterprises involved in trading and distribution range from one-man small shops to

large chains of supermarkets. Some enterprises deal in wholesale business. They buy

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products in large quantities from producers/manufacturers and sell them in small

quantities to retailers who in turn sell in still smaller quantities to consumers.

1.6.3 Service enterprises

Services provided involve the performance of some work, only the results of which

might be seen or felt. Examples include banking, finance, transport, maintenance and

repair of machinery etc. Others include a wide variety such as accountants, lawyers,

dentists, etc. There are other enterprises which provide specialized services which are

often called utilities – such as electricity, gas, water, communication etc.

1.6.4 Multi activity enterprises

There are also some enterprises which fall into more than one of the three

categories. For example, an enterprise may sell office machines and also provide

maintenance service for these materials.

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1.7 Types of business units

In the private sector, the range and variety of a manager’s work, duties and

responsibilities might depend on the type, size and ownership of the business unit by

which he/she is employed. The basic types of business units in the private sector are:

• Sole-proprietor

• Partnership firms

• Limited liability companies

1.7.1 Sole proprietor

The most common form of business ownership is sole proprietorship, sometimes

called the individual proprietorship. The business is owned by one person. It is usually

operated by the owner, possibly with the help of family members or a few employees.

Sole proprietorship can usually operate with very limited capital resources.

™ Advantages:

• This type of business is easy to set up.

• It is very flexible. The owner has the freedom to run the company how

he/she likes.

• The proprietor can offer a personal service.

• He/she can keep all the profits to himself/herself.

• Finances are kept private and accounting requirements are simple – the

services of an accountant may not be needed.

• The business can be changed to suit local needs.

™ Disadvantages:

• After normal trading hours, there still remains a lot of paperwork to be

done, and only one person to do it. One will need to work long hours to

meet tight deadlines.

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• It is more difficult to raise money to expand the business.

• If the owner is ill, he may have no cover to enable the business to carry on.

• It is risky. The owner is on his/her own, with no one to share the

responsibility of running the business. He/she has unlimited liability.

™ Examples of sole proprietorship:

• Small shop owner – fruit, vegetables, groceries

• Furniture shop owner

• Financial advisor

• Plumbing/electrical services

• Freelance journalist/author

1.7.2 Partnership firms

A partnership is a group of people working together in business in order to make a profit.

A partnership is straightforward to set up – it involves two or more people running a

business together. They share control of the business, and own it between them. A

partnership is also a suitable structure for a small business.

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Most partnerships have a Partnership Agreement. This sets out matters such as the

amount of capital investment contributed by each partner, the sharing out of profit

(and loss) by the partners, and what to do if there is a dispute. It is a good idea to have

Partnership Agreement because if something does go wrong – if there is a dispute – it

will set out how the matter can be settled. A Partnership Agreement is not essential,

but it does contribute towards the smooth running of a business.

™ Advantages:

• More capital is available than in a sole proprietorship business.

• The workload is usually shared.

• There are likely to be more skills available – one partner may be a technical

expert, another good salesperson, another financial expert, and so on.

• There is cover for holidays, sickness and other emergencies.

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™ Disadvantages:

• There is danger of disagreement among partners. If some of the partners

are dishonest or incompetent, the others could be left with large debts

and a big mess to clear up.

• Death, retirement etc. of any of the partners threatens to break up the

business.

• All partners have unlimited liability. If the business fails, or if one partner is

successfully sued, then all partners are responsible for all debts. In addition,

if one partner fails to pay income tax (for example), the other partners may

have to pay it for him/her, as well as their own.

™ Examples of partnership:

• Accounting firms

• Legal firms

• Groups of doctors, builders etc.

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1.7.3 Limited companies

A limited company is a business:

• Owned by shareholders;

• Run by directors;

• Set up as a body that is separate from its owners (shareholders).

A limited company is very different from a sole proprietorship business. The sole

proprietor or partner is the business: if the business goes ‘bust’ then so does the

owner. The shareholder-owner of a limited company stands apart from the business,

which is a body in its own right. If the company goes ‘bust’ the shareholder is protected

by limited liability, and does not lose all his/her money – just the money invested in the

shares of the company.

There are two types of limited companies:

• Private limited company: Most small or medium-sized businesses which decide

to incorporate (become a company) become private limited companies. They

are often family businesses with the shares held by the members of the family.

Private companies cannot offer their shares for sale to the public at large, and

so they may find it difficult to raise money.

• Public limited company: Public limited companies are larger than private

companies. They can offer their shares for sale on Stock Market in order to

raise money, but not all public limited companies do this.

™ Who controls limited companies?

Shareholders own a limited company and appoint directors to control the

management of the company and plan for its future.

• In the case of private limited company, the shareholders often are the

directors, and so the shareholders can be said to control the company.

One of the directors is the managing director.

• In the case of public limited company, the shareholders can only speak

and vote at the company meetings (often only once a year) and it is the

directors who control the company.

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• All companies have to register with the relevant government agency. A

company will also need the following documents:

- The Memorandum of Association: This states what a company can do.

- The Articles of Association: This is the internal ‘ruletraining ’ for the

directors.

•

™ Advantages:

• A public limited company has more capital available than partnerships do.

• It has a legal position as a company in its own right, not just a group of

partners.

• The owners have limited liability.

™ Disadvantages:

• This type of company is expensive to set up. Legal and accounting fees canbe

especially costly.

• In private limited companies, shares cannot normally be bought or sold to

the public. The director has to approve the buyer. This may limit capital.

• Careful accounts must be kept. The company is legally obliged to publish

and register its accounts annually. A public limited company must also

have a full audit every year. The requirements for public limited

company in this area are much stricter than those for a private limited

company.

• The business is less flexible than the other types of ownership.

™ Examples of limited companies:

• Marks and Spencer

• Microsoft Corporation

• Larsen & Toubro

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Fig. 1/1 Types of business units